Insight Magazine December 2010

w w w. a m c h a m - s h a n g h a i . o r g

INSIGHT The Journal of the American Chamber of Commerce in Shanghai December 2010

VIP VISITOR

Governor Tim Pawlenty HR FEATURE

Competition for Talent REGULATORY UPDATE

Consumer Product Safety

Now the world’s second-largest economy, China is rebalancing its priorities to maintain growth

Asia’s New Front-Runner

INSIGHT December 2010

The Journal of the American Chamber of Commerce in Shanghai

David Turchetti DIRECTORS

BUSINESS DEVELOPMENT & MARKETING

Karen Yuen COMMITTEES

Siobhan M. Das COMMUNICATIONS & PUBLICATIONS

David Basmajian EVENTS

Jessica Wu FINANCE & ADMINISTRATION

Helen Ren

12 Building Talent Competitiveness in China

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JASON PYM

V I C E P R E S I D E N T, P RO G R A M S

HR FEATURE

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Brenda Foster

F E AT U R E S

ZHU XIAOCI

PRESIDENT

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AMCHAM SHANGHAI

By Danny Yuan

Chinese companies have emerged as a viable competitor to multinationals for talent in China’s increasingly competitive labor market.

16 Leveling the Playing Field VIP VISITOR

By David Basmajian

Insight talks to Minnesota Governor Tim Pawlenty about the importance of engaging China on fair and free trade.

MEMBERSHIP & CVP

Linda X. Wang

INSIGHT EDITOR-IN-CHIEF

Justin Chan

19 Partnering Globally to Ensure Safety Locally REGULATORY UPDATE

By Tiffany Yajima

SENIOR ASSOCIATE EDITOR

Tiffany Yajima

ASSOCIATE EDITOR

Esther Young

EDITORIAL INTERN

Ashley Cahill DESIGN

Alicia Beebe LAYOUT & PRINTING

Ella Shan Snap Printing, Inc.

INSIGHT SPONSORSHIP SPONSORSHIP MANAGER

Sophia Chen

The U.S. Consumer Product Safety Commission gives insight on new product safety laws and compliance measures that may affect China manufacturing operations.

22 Asia’s New Front-Runner COVER STORY

By Ryan Balis

China’s rise to become the world’s second-largest economy causes need for an introspective look at the challenges that remain ahead.

(86-21) 6279-7119 ext. 5667 Story ideas, questions or comments on Insight: Please contact Justin Chan (86-21) 6279-7119 ext. 5668 justin.chan@amcham-shanghai.org Insight is a free monthly publication for the members of The American Chamber of Commerce in Shanghai. Editorial content and sponsors' announcements are independent and do not necessarily reflect the views of the governors, officers, members or staff of the Chamber. No part of this publication may be reproduced without written consent of the copyright holder.

I N S I G H T S TA N DA R D S

3 News Briefs

44 Deal of the Month

10 Transport Solutions along the Yangtze MARKET PROFILE

According to Yangtze Transport: Accessing China’s Interior, companies are considering new options such as railways and waterways to transport goods to and from inland areas.

INSIDE AMCHAM Shanghai Centre, Suite 568 1376 Nanjing West Road Shanghai, 200040 China tel: (86-21) 6279-7119 fax: (86-21) 6279-7643 www.amcham-shanghai.org

Special thanks to the 2010-2011 AmCham Shanghai President’s Circle Sponsors

29 From the Chairman: 2010 Year-end Wrap Up 32 Annual General Meeting 36 CSR Conference & Awards

39 New Member Listing 40 Events in Review 42 Committee Highlights

INSIDE INSIGHT

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JUSTIN CHAN EDITOR-IN-CHIEF

s 2010 draws to a close, it’s a good time to look back on what has been a historic year for China as well as the city of Shanghai.

The Shanghai 2010 World Expo achieved record participation from 246 countries and organizations and drew record crowds totaling more than 73 million. For those of us living here, the six-month event seemed to fly by, and I’m sure I’m not alone in wishing for one more trip down Expo Boulevard around the Expo grounds.

Earlier this year, China officially surpassed Japan as the world’s second-largest economy. This achievement is a testament to China’s remarkable economic growth, but as the economy continues to develop and mature, a number of new challenges confront the country’s leaders. This month’s cover story examines some of these challenges, such as balancing growth, managing inflation and caring for an ageing population.

For businesses operating in China, the most persistent challenge to success continues to be human resources. Our HR feature looks at the emergence of Chinese companies who are competing with multinational companies for talent and offers a number of initiatives that companies

should consider. Our regulatory update reviews the impact of the U.S. Consumer Product Safety Improvement Act on products manufactured in China that are destined for the U.S. and the role the U.S. Consumer Product Safety Commission is playing to enhance consumer protection.

This issue also features an interview with Minnesota Governor Tim Pawlenty, who was in Shanghai earlier this fall leading a trade delegation.

With many expecting Pawlenty to run for president in 2012, Insight sat down with him to discuss the opportunities and challenges facing the U.S.-China relationship.

Finally, I’d like to take this opportunity to say farewell and thank you to all the readers of Insight magazine, as December will be my final month at AmCham Shanghai. After contributing to 48 issues of Insight in addition to a number of other publications and projects, I will step down as Editor-in-Chief to pursue new opportunities. It has truly been a privilege to work on Insight and I offer my sincere thanks to President Brenda Foster and the entire AmCham Shanghai team, in addition to all the writers, designers and members who have contributed over the years. I wish you all the best.

IMAGINECHINA

News

N NE EW WS S B BR R II E EF FS S

CHINA BUSINESS

Karaoke bars face copyright lawsuits The China Audio-Video Copyright Association (CAVCA) may bring lawsuits to over 100 karaoke bar operations in Beijing for copyright breaches on songs and music videos used at karaoke establishments. Karaoke bar owners would have to pay fines as well as the maximum royalty rate of US$1.65 per room per day to use CAVCA-registered music. CAVCA began collecting copyright fees in 2008, concentrating on enforcement in Beijing, Shanghai and Guangdong Province. As of January 2010, CAVCA has collected over RMB170 million (US$26 million) in royalties since its establishment in 2008. According to CAVCA, copyright owners have received over RMB120 million of that amount.

CAVCA currently represents 150 copyright owners with more than 111,000 registered musical compositions.

China’s online consumers among most powerful Chinese netizens’ cumulative online purchasing power ranks among the most powerful in the world, according to a new index by Italian-based translation company Translated. According to the company, the index identifies languages used by consumers “that will most likely buy from your website or your advertisers,” combining the Internet population operating in a particular language and the estimated GDP per capita. The index indicates that the consumer purchasing power of simplified Chinese websites in Singapore and China is second only to English websites. Though the GDP per capita of simplified Chinese language users is US$13,439, the 420 million online users of the language pushed simplified Chinese-language websites above Spanish,

President Hu talks economic policies at G-20 summit Chinese President Hu Jintao opposed trade protectionism and pushed international financial system reforms at November’s G-20 summit in Seoul, Korea.Though the summit did not result in concrete agreements, there was an endorsement of strict new bank capital requirements, and countries agreed to compile a list of globally systemic financial institutions that would be subject to regulatory scrutiny. Hu also declined U.S. calls to rein in China’s trade surpluses and move on the exchange rate of its currency.

Surplus trade countries such as China and Germany stated that they would reduce their reliance on exports, while the U.S., which has a trade deficit, will increase its export efforts.

Japanese and German language websites in purchasing power.

China’s 3G market penetration to exceed 10% The market penetration of 3G users in China is expected to exceed 10% next year, up from 3% today, according to Hu Jianbo, deputy director of a telecom research institute. The research institute, affiliated with China’s Ministry of Industry and Information Technology (MIIT), also says usage rates of 3G-related businesses in China, the world’s largest mobile market, are still relatively low. Services, such as ringtones and photo downloads, are used at a higher rate than the global average, but

web browsing, video and email services lag behind. Chinese mobile data businesses still by and large draw revenue from users of 2G and 2.5G technology.

Kaohsiung-Qingdao flights launch Taiwanese airline EVA Airways Corp. launched Kaohsiung to Qingdao flights, the first direct flight between the southern Taiwanese city and Qingdao in eastern China’s Shandong Province. Flights will operate once a week on Saturdays, increasing the total number of direct Taiwan-Qingdao flights to 20 per week.

Xinhua reports that passenger traffic to and from Taiwan this year has increased

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55% year-over-year. Mainland and Taiwanese airlines began to offer direct flights between Taiwan and the mainland in 2008 for the first time in six decades.

A Shanghai Hongqiao-Taipei Songshan route opened last June and cuts commuting time between Shanghai and Taipei in half.

CORPORATE NEWS

Dell to build new facilities in China Personal computer maker Dell Inc. announced plans to build two new data centers in China within one year, although it did not elaborate on the capabilities of the data centers. Rong Yongkang, vice president of Dell China, told local media that Dell will build new offices in Xiamen and will hire 500 new employees locally. Dell, which is moving operations from hardware to providing services and solutions, previously announced that the company will build its second China operation center in Chengdu and plans to hire 2,000 to 3,000 new employees before the end of 2011. The company will invest US$100 billion in China over 10 years, covering purchases, production, construction and recruitment.

SAIC buys stake in GM Shanghai Automotive Industry Corp.

(SAIC), General Motors Co.’s main joint venture partner in China, announced that it bought a nearly 1% stake in GM through GM’s initial public offering in the U.S. SAIC will pay US$500 million for a 0.97% share at US$33 a share, saying that it will raise funds for the purchase in the Hong Kong financial market. GM projects that, in cooperation with SAIC, it will sell more than two million cars in China this year.

GM previously announced a collaboration on energy efficient vehicles for the China market. In 2009, GM ceded its majority stake in the SAIC-GM joint venture in China, transferring 1% of its holdings to SAIC to give SAIC a 51% majority stake.

Adidas expands in China Adidas AG announced it will open 2,500 stores in second- and third-tier Chinese cities, including plans to open 500 new

stores by the end of 2011. It currently operates 112 outlets in China. The German sporting goods company, the second largest in the world after Nike Inc., also plans to widen its distribution to 1,400 cities during that period. Adidas aims to increase sales to US$17 billion a year by 2015, up 66% from its sales in 2009.

It currently lags behind Nike and local sporting goods maker Li Ning Co., Ltd. in China. Adidas has struggled in China after the 2008 Beijing Olympics, for which it was an official sponsor, after it oversupplied retailers in China and was forced to take back inventory. Adidas returned to growth in China in only the third quarter of 2010.

MACROECONOMICS

Central bank raises reserve requirements The People’s Bank of China (PBoC) is taking aim at controlling rising inflation by ordering an increase to banks’ reserve requirements for the fifth time this year to 18% for major banks. The government’s official target is to keep bank lending within RMB7.5 trillion for the year, though banks have increased their number of loans as the end of 2010 draws near. The central bank’s move came after other announced measures to curb inflation, including a hike in benchmark interest rates in October, the first increase in nearly three years. Rising food prices contributed to driving China’s consumer price index – a measure of inflation – up 4.4% in October from a year earlier, the largest increase in over two years.

Foreign trade in China increases 24% According to statistics released by China’s Ministry of Industry and Information Technology (MIIT), the value of China’s imports and exports increased to US$244.8 billion in October year-on-year, though the figure decreased 10.4% month-on-month.

China’s October exports grew 22.9% yearon-year to US$136 billion, while imports increased 25.3% year-on-year to US$108.8 billion. China’s trade surplus was US$10.3 billion more than in September, but it decreased 6.7% from 2009’s figure over the

same period. China’s exports of iron and steel increased 5.5% year-on-year to 2.86 million tons; imports decreased 23% to 1.14 million tons. China’s copper imports increased 3.8% year-on-year to 274,000 tons.

China’s Consumer Confidence Index down The Consumer Confidence Index, a main measure of Chinese consumers’ confidence in the economy, fell five points on a quarterly basis to 104, the first drop in six quarters, according to China’s National Bureau of Statistics (NBS). “The index fell because consumers are less willing to buy,” said the NBS. Confidence among rural residents fell 11 points to 106. The confidence index among urban consumers, however, was stable. According to the report, 78% of consumers expect commodity prices to increase over the next year, up 10 percentage points from the second quarter, and 62% believe that housing prices will continue to rise.

U.S. - CHINA

Huawei deal gets CFIUS scrutiny Huawei Technologies Co. is garnering scrutiny from the U.S. government stemming from a deal to acquire a small U.S. technology firm that had not been approved by the Committee on Foreign Investment in the U.S. (CFIUS). In May, Huawei paid US$2 million to acquire staff and intellectual property from 3Leaf Systems, a Santa Clara, California start-up that focuses on server computer systems. Pentagon officials discovered the deal after its completion and have asked the company to clear the deal with CFIUS retroactively. Huawei and former 3Leaf Systems executives say that because Huawei did not buy all of the company’s assets, they did not believe the deal would require CFIUS review.

U.S., China team up on clean energy U.S. Secretary of Energy Steven Chu said the U.S. and China will launch a joint clean energy research initiative to

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enable the development of clean energy technologies. The US$150 million research initiative will focus on carbon capture, electric vehicle technology and energy-efficient buildings. Though there will not be a physical research facility, teams of scientists from both countries will share information and collaborate on technology development. “The two countries’ interests are incredibly aligned,” said Chu. “The sharing of technologies is a very natural thing.” President Obama first announced the plan in November 2009 when he visited China on a state visit.

GOVERNMENT & POLICY

China to launch Russian ruble trade Beijing announced it will launch trading of the Russian ruble against the renminbi (RMB) on the country’s foreign-exchange market, bringing the total number of foreign currencies trading on China’s interbank system to seven. Beijing has recently been promoting the use of the RMB to settle commercial trade transactions and the announcement indicates another step toward making the RMB a global currency. The six currencies already trading against the RMB include the U.S. dollar, the Hong Kong dollar, the Japanese yen, the euro, the pound and the Malaysian ringgit. The announced ruble trading plan will allow RMB-ruble trade on the onshore interbank foreignexchange market, though most crossborder trade will still be denominated in dollars for the foreseeable future.

Government releases inflation control measures The State Council, the Chinese government’s executive branch, released a circular announcing measures to curb rising commodity prices, including a mandate for temporary price controls on “important daily necessities” and a call to boost agricultural production. Road tolls for vehicles transporting fresh and live farm produce will be suspended from December 1. The circular calls for local provincial governments to reduce power,

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gas and rail-transport prices for chemicalfertilizer producers and to increase production of diesel oil to “guarantee supply.” It also calls for increases on social security mechanisms, basic pensions, unemployment insurance and minimum wages. China’s food prices increased 10.1% in October, driving up that month’s consumer price index 4.4%.

China to increase support for rural education China’s Ministry of Finance (MOF) announced it would allot an additional RMB10.52 billion (US$1.6 billion) from the central government budget to support nineyear compulsory education for all students in China’s rural areas. Out of that amount, RMB8.98 billion will be used for general expenses while the remaining RMB1.54 billion will help fund underprivileged students attending boarding schools in China’s central and western regions. The ministry already pledged RMB63.52 billion for the program earlier this year.

Under China’s Compulsory Education Law, Chinese children are entitled to nine years of public education, from primary to junior high school. Beijing is setting up an education consulting committee to develop “fair and good education.”

Report predicts China to become a leader in research Consultancy Monitor Group published a report that predicts an increased return over the next decade of Chinese scientists who have studied or worked in Western countries. Some 80,000 such scientists already have returned to China since the mid 1980s. Fueled by heavy investment by the Chinese government and private enterprises, the report suggests that China will become a leader in research in pharmaceuticals and healthcare by 2020.

The Chinese government has implemented the Thousand Talents Program, designed to bring back 2,000 Western-trained Chinese scientists by providing resources and funding. China is currently the thirdlargest pharmaceutical market, and it is expected to grow by 25% to more than US$50 billion in sales in 2011.

DECEMBER 2010

SHANGHAI BUSINESS

License plate prices increase to record high The average price of a car license plate in Shanghai rose RMB2,020 to a record RMB45,291 (US$6,800) in November’s car plate auction, according to the Shanghai International Commodity Auction Co., Ltd. The lowest car plate bid was RMB44,900.

Shanghai’s municipal government offered 8,500 car plates this month, 500 fewer than last month. Industry watchers say the price increase resulted from a limited supply of car plates and stricter rules for license applications in neighboring cities for Shanghai car owners. Hangzhou, Ningbo and Nanjing now require a local employment certificate for a car license.

The Shanghai car plate auction attracted 13,429 bidders in November, around 1,500 fewer than in October.

Shanghai retail sales increase According to the Shanghai Municipal Statistics Bureau (SSB), Shanghai’s total retail sales rose 19.2% year-on-year to RMB54.44 billion (US$8.2 billion) in October. Shanghai’s retail sales of food increased 21.1% year-on-year to RMB17.09 billion, and consumer goods retail sales increased 17.3% year-onyear to RMB27.96 billion. Retail sales of clothing grew 22.6% year-on-year. Total retail sales for Shanghai – the largest city in China – totaled RMB500.2 billion over the first 10 months of this year, up 17.8% over the same period last year. The SSB also reports that the value of imports into Shanghai increased 27.6% year-on-year to US$14.57 billion.

Four charged with selling counterfeit goods Jing’an District prosecutors charged four individuals with selling counterfeit products ranging from handbags to watches in the downtown area. Police confiscated an estimated RMB17 million (US$2.6 million) worth of counterfeit goods, including brands such as Louis Vuitton, Gucci, Chanel and Longines.

Police say that each of the four suspects,

who worked from the same residential warehouse location, specialized in the sourcing and distribution of particular types of counterfeit items and hired scalpers to solicit customers around Jing’an District. A scalper was also arrested during the crackdown but was released because of a lack of evidence.

2010 WORLD EXPO

Shanghai 2010 World Expo ends With a record 73 million visitors over 184 days, the Shanghai 2010 World Expo officially came to a close on October 31.

The RMB28.6 billion (US$4.3 billion) event at the 5.28 square kilometer site attracted the participation of 246 countries and organizations, 814,000 volunteers from China and overseas and an average 370,000 visitors a day. Peak attendance was 1.03 million on October 16. China’s government also spent US$44 billion on Shanghai city infrastructure improvements in anticipation of the event, including construction of new subway lines, roads and public facilities.

Most pavilions are being dismantled or shipped back to their country of origin.

The China Pavilion will remain on the Expo site, although majority of the site will be remodeled into a residential and commercial area. The 2012 Expo will take place in Yeosu, South Korea with the theme “Green Growth, Blue Economy,” focusing on marine-based sustainability.

Expo hosts Summit Forum United Nations Secretary-General Ban Ki-moon and Chinese Premier Wen Jiabao were among the guests at the 2010 Summit Forum at the Expo site, where state leaders, entrepreneurs and scientists were invited to “seek innovative ways for sustainable urban development,” according to Expo organizers. Premier Wen gave a keynote speech that touched on China’s focus on “harmonious urban development,” the government’s push for science and technology research and rural modernization. Participants discussed digital cities, knowledge innovation, ecocities and community management. The Shanghai Declaration, which outlined

DECEMBER 2010

general goals for urban sustainability, was also delivered during the closing plenary of the forum.

Expo boosts tourism numbers According to the China National Tourism Administration (CNTA), direct tourismrelated spending from the Shanghai 2010 World Expo exceeded US$12 billion in Shanghai. The increase of tourists to adjacent cities led to a 20% bump in demand for travel-related industries, including rail, air and accommodation.

Inbound visitors to Shanghai amounted to over 99.8 million in the first nine months of the year, with foreign exchange earnings increasing 15.8% year-on-year to US$33.7 billion. Individual pavilion organizers also reported increased interest from visitors. South Korea, whose Expo pavilion attracted 7.25 million visitors, released a report projecting that the number of Chinese tourists who will visit South Korea over the next three years will increase by 450,000, bringing an estimated US$562.4 million to South Korea’s economy.

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CHINA & THE WORLD

SOUTH AMERICA ASIA-PACIFIC

JAPAN: Toyota to research green energy in China Japan’s Toyota Motor Corp. announced plans to open a US$234 million research center in Changshu, a city northwest of Shanghai. Among other projects, the research center will work on plug-in hybrids and all-electric battery car technology for the Chinese market. Toyota says the center – wholly owned by Toyota – will be partially open by early 2011 with 200 employees, eventually increasing to 1,000 employees. Although Toyota spokesman Hitoshi Yokoyama says the automaker has not yet been asked to carry out technology transfers, he notes that if Toyota is mandated to do so, the technology would be developed at the product development centers Toyota jointly runs with Guangzhou Automobile Group Co. and FAW Group Corp.

MIDDLE EAST

ASIA-PACIFIC EUROPE

SOUTH AFRICA: CDB bank to aid African countries Prior to a visit by Chinese Vice President Xi Jinping to Cape Town, South Africa, China Development Bank (CDB) President Chen Yuan announced that CDB will reshape its financial services to “better help African countries.” CDB is China’s largest foreign investment and financing bank.

Chen says the bank has offered more than US$10 billion of intended financing to Africa and a total of US$5.6 billion of financing currently supports 35 programs in over 30 African countries.

Chen also says CDB has established the China-Africa Development Fund and provides US$1 billion in loans to medium- and small-sized African companies. Chen accompanied Xi on his tour of African nations, including visits to South Africa, Botswana and Angola.

AFRICA

UNITED KINGDOM: UK aims to double trade with China British Prime Minister David Cameron wants to increase bilateral trade with China to US$100 billion. On his first official trip to China since taking office last May, Cameron stated that he wants British exports to China to account for US$30 billion in trade to support growth in the UK. The UK currently exports US$12.4 billion in goods and services to China. A number of agreements were signed during Cameron’s visit, including a deal to boost Scotch whisky sales and import breeding pigs into China. A deal signed between China Aviation Supplies Holdings and Airbus SAS in France last week, says Cameron, allowed British companies to secure US$5 billion in business.

MIDDLE EAST EUROPE

NORTH AMERICA MIDDLE EAST

AFRICA

KUWAIT: China, Kuwait to strengthen energy sector ties Chinese Vice Premier Li Keqiang and Kuwaiti Minister of Oil Sheik Ahmed Al Abdullah Al Sabah pledged to develop stable cooperation in the oil and gas sector. Sheik Ahmad and Li also discussed plans for a Beijing office of the Kuwait Investment Authority, the opening of Kuwait’s oil and gas industry to China’s petroleum group Sinopec and a joint refinery project. The joint refinery project, to be built on China’s Donghai Island, is in its final stages of planning and is designed to shore up energy for Guangdong Province. The Kuwaiti minister also urged Li to encourage Chinese companies to participate in the government’s US$129 billion five-year development plan that runs through 2014.

NORTH AMERICA

SOUTH AMERICA MIDDLE EAST AFRICA

UNITED STATES: China No. 1 source for international students Washington-based Institute of International Education reports that China has become the U.S.’s largest source of international students in the higher education system. There were nearly 128,000 international students from China studying in U.S. universities and colleges during the 20092010 academic year. Chinese student enrollment in the U.S. increased 30% from a year earlier, despite the global recession, and comprised more than 18% of the total international student population. Business and management were the most popular fields of study, constituting 21% of total Chinese students in the U.S. Universities in California hosted the largest number of foreign students, followed by universities in New York.

AFRICA ASIA-PACIFIC NORTH AMERICA

SOUTH AMERICA

ECUADOR: China signs US$20 million agreement Ecuadorian Exterior Commerce and Integration Vice Minister Francisco Rivadeneria and Chinese Vice Minister of Commerce Zhong Shan signed an economic cooperation agreement that will strengthen commercial ties between the two countries and ensure US$20 million in trade. Under the agreement, eight Chinese companies will import bananas and fish powder from Ecuador. Bilateral trade between Ecuador and China has increased over the last few years; in 2009, it totaled US$2.4 billion, up 10% from a year earlier. Chinese investments in Ecuador are worth US$2.2 billion and are mostly focused on the infrastructure, communications and energy industries. Ecuador is China’s tenth largest trading partner in Latin America.

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SOUTHAMERICA AMERICA NORTH EUROPE

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SOUTH AMERICA ASIA-PACIFIC

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MARKET PROFILE

B Y DAV I D L A M M I E

ISTOCKPHOTO

To reduce both cost and environmental impact, companies are considering the use of waterways and rail to access the China's interior.

R

ising fuel prices, worsening road congestion and a search for greener forms of transport are persuading an increasing number of manufacturers in China’s interior to consider making greater use of waterways and the railways, according to the latest edition of Yangtze Transport: Accessing China’s Interior.

The central government has decided to increase investment in the river’s infrastructure to encourage this trend. At the end of August, the State Council met to discuss crucial role of the Yangtze River and other inland waterways in the construction of a comprehensive transport system. Waterways will become a top priority for coordinated planning and investment, offering an efficient, safe and eco-friendly mode of transport within the next 10 years.

Investment will be directed towards dredging to improve the quality of the Yangtze trunkline as a shipping channel, while the vessel standardization program will be accelerated so that old vessels are withdrawn more rapidly. New legislation will also be introduced to minimize energy consumption and carbon emissions.

Cargo throughput of the 24 major ports on the Yangtze trunkline stood at 1,272 tons in 2009, according to official figures, up 12.6 percent on the previous year. Container throughput bucked a declining national trend by increasing 4.5 percent to

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Transport Solutions along the Yangtze 7.33 million TEU (twenty-foot container equivalent unit). Traffic remains heavily concentrated in the lower reaches where the shipping conditions are better, the local economies are more dynamic and access to the sea is easier. The Jiangsu Province ports from Taicang to Nanjing accounted for 67 percent of the Yangtze River’s total throughput in terms of both containers and general cargo, highlighting the continued dominance of the economies around the Yangtze River Delta.

However, the dynamics appear to be changing, albeit slowly, as more manufacturers set up plants in central and western provinces. In 2009, traffic volumes in the upper reaches made up 7.7 percent of the total, up 0.7 percent year-on-year, while the middle reaches accounted for 9.8 percent of the total, up 0.8 percent. Consequently, the proportion of traffic in the lower reaches was reduced from 84 percent in 2008 to 82.5 percent in 2009.

The examples below demonstrate how companies are considering the Yangtze River as an alternative transportation option.

L’Oreal The global cosmetics and beauty group L’Oreal has a production facility in Yichang, Hubei Province that produces skincare products for the Mininurse brand, as well as lipstick for the L’Oreal Paris, Maybelline and Yu-Sai brands.

The absence of a local cosmetics industry in the

Yichang area means that L’Oreal has to source its raw materials from the distant coastal provinces of Jiangsu, Zhejiang and Guangdong. Most of its Mininurse finished products are trucked to a distribution centre in Suzhou, where they are then transported to domestic retailers or shipped to overseas markets.

L’Oreal’s global commitment to cut carbon dioxide emissions is expected to translate into detailed quotas within the corporation in the next two years. As a result, the Yichang plant is studying the viability of using the waterway and rail networks and the resulting impact of carbon dioxide emissions on its overall logistic planning.

Terex Corporation US-based Terex Corporation has a joint venture in Luzhou, Sichuan Province, with Sichuan Changjiang Engineering Crane, China’s third largest hydraulic crane manufacturer and a leading

domestic producer of on-highway truck cranes.

The joint venture manufactures some 1,600 cranes a year, giving it a national market share of some 5 percent.

Terex does not use Luzhou’s port to transport finished products because of the lack of a roll-on, roll-off (ro-ro) terminal and the special vessels needed to transport cranes. Instead, it drives the cranes to customers in eastern China, clocking up an average journey of 2,000 kilometers on each new product by the time it reaches its destination. The company is considering the option of using the roro terminal in Chongqing and the Yangtze River in the future if it decides to export components by container to the U.S. or Europe.

For more information on Yangtze Transport: Accessing China’s Interior, please visit www.yangtzebusinessservices.com.

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Waterways will become a top priority for coordinated planning and investment, offering an efficient, safe and eco-friendly mode of transport.”

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Building Talent Competitiveness in China

Foreign companies must adopt innovative HR strategies to attract and retain talent in China.

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or over three decades, foreign companies have flourished in China.

With a reputation as “golden brands,” foreign companies have long been regarded by Chinese workers as highly desirable places to work. However, all that is starting to change. In the wake of the recent financial crisis, many foreign companies have cut production and reduced their payrolls; some have even shut down Chinese operations. Maintaining the talent pipeline, particularly at the manager level, is now a critical business issue for foreignowned companies.

Compounding the challenge for foreign companies is the fact that more Chinese firms, both state-owned and private-owned, are gaining prestige on the international stage and enjoying a better reputation among workers. In this context,

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the talent war between foreign and Chinese private-owned companies is beginning to turn in favor of the latter.

While this trend presents many opportunities for Chinese private-owned companies – both in China and overseas – foreign organizations will face greater challenges in finding the talent they need to help them achieve their business objectives.

A shifting talent landscape Manpower’s 2010 Foreign and Chinese PrivateOwned Companies Talent Competitiveness Survey indicates that the lure of foreign-owned companies is now waning for Chinese employees, with more preferring to work for Chinese private-owned businesses instead. The data reveals a clear change

in job seekers’ preferences. Compared to the 2006 survey results, the percentage of job seekers considering Chinese private-owned companies as their first choice is up by five percentage points, while those preferring foreign companies is down by 10 percentage points. Chinese private-owned companies are especially favored by job seekers from South China where companies are relatively more mature and generally have more modern management systems. These companies, such as Anta, Vanke and Heng’an, are well respected in their industries and have good reputations as employers.

With talent shortages becoming more acute, and as fast-growing Chinese private-owned companies become more competitive, foreign companies will find it increasingly challenging to retain managers. Manpower’s survey indicates that this pressure will continue and even intensify as Chinese private-owned companies have become markedly more attractive to management-level job seekers. Sixty percent of managers responding to the survey say that a Chinese private-owned company would now be their first choice as an employer.

Foreign companies face further competitive threats from Chinese private-owned companies which have been investing heavily in talent, offering highly favorable compensation and benefits packages. Consequently, foreign companies no longer have a reputation as the highest-paying employers. Manpower’s survey reveals that 43 percent of job seekers view “better compensation” as the primary reason to favor Chinese private-owned companies, seven percentage points higher than for those who are attracted to foreign companies.

However, when it comes to corporate culture, Chinese private-owned companies still lag behind their foreign counterparts. Only 20 percent of job seekers view experiencing a new corporate culture as the primary reason to choose employment with Chinese private-owned companies, compared to 28 percent among those preferring employment with foreign companies.

These shifts in the balance of talent are already being felt among human resources (HR) management of foreign companies. Sixty percent say they feel the effects of competition from Chinese private-owned companies when it comes to their ability to attract talent and they say this impact is increasing, particularly in Eastern China.

Surprisingly, few foreign companies are responding to the challenge. The percentage of foreign companies who have taken countermeasures to improve their talent attraction strategies is lower than, or almost the same as, that of Chinese privateowned companies. The difference is especially evident when it comes to making an investment to secure talent, including increasing compensation and benefits packages (a 10 percentage point gap) as well as offering training incentives and learning opportunities (a 16 percentage point gap).

Advice for foreign companies Maintain a flexible compensation system: When foreign companies first started operations in China, Chinese employees were offered remuneration similar to those of foreign staff. Now, compensation and benefits offered to executives by some Chinese private-owned companies are even more attractive than those offered by foreign companies. Their equity incentive plans are particularly effective in luring executive talent away from foreign companies.

In addition, some foreign companies assume that since labor in China is cheap,

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To maintain sustainable competitiveness, it is critical for foreign companies to exercise flexible compensation systems which adapt quickly to market changes.”

they can pay lower salaries to local executives. As a result, some local executives are paid half or even a third of the salaries that foreign executives receive, even though the latter’s performances are not necessarily any better than that of local executives. Such unfair compensation distribution clearly has a serious negative impact on local employees’ motivation to work for foreign-owned companies.

To maintain sustainable competitiveness, it is critical for foreign companies to exercise flexible compensation systems which adapt quickly to market changes. Moreover, the frequency and margin of pay adjustment should be based on the severity of the shortages and demand for relevant talent in the market. Due to the mismatch between supply and demand, it is not uncommon for managers in some positions to receive an annual two-digit percentage salary increase in order to retain them.

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Leverage unique training opportunities: From the perspective of talent retention and business costs, relying solely on increasing compensation and benefits packages is not a long-term solution.

Companies poaching talent with attractive remuneration should be wary of finding themselves stuck in a vicious cycle as other companies poach their talent with even higher wages. Although money is a critical factor in talent attraction, particularly for management roles, it is by no means the only factor: Chinese managers are also attracted by training and development opportunities.

Many Chinese private-owned companies have started paying attention to talent development as they experience fast growth; some are even developing their own training schemes.

To stay ahead of the game in terms of employee training and development opportunities, foreign companies should continue to leverage their unique advantages, for example, by offering high achievers the opportunity to experience diverse cultures and cross-country training, regardless of their position, educational background or seniority. Foreign companies should also combine successor planning with leadership training and maintain a strong focus on employee development within the whole company.

Break the “glass ceiling”: Some foreign companies have started to assign local talent to senior executive positions in China. This trend should be encouraged, especially for Japanese and Korean companies, but most foreign companies still appoint expatriate managers. This has led to many talented executives choosing to work for Chinese private-owned companies in recent years because they reached the “glass ceiling” at foreign companies – that is, they could progress no further.

This trend is confirmed in Manpower’s 2010 Foreign and Chinese Private-Owned Companies Talent Competitiveness Survey, which reveals that 55 percent of management job seekers made the decision to switch employers in order to benefit from long-term career development. In fast-growing Chinese private-owned companies,

mid-level and senior-level managers are generously empowered and offered great promotion potential – in some cases promotion is as frequent as once a year or even once a quarter.

Leverage HR as a strategic partner: HR departments of foreign companies must be leveraged as strategic partners in their organizations’ business development plans. For example, HR can add real value in securing the talent needed for business expansion, as well as formulating and improving strategies for talent flow, attraction and retention across countries, cities and regions. Finding talent to fuel business expansion in particular can be challenging for foreign companies targeting second- and third-tier cities or even smaller markets in China.

To gain an advantage in the current talent war, foreign companies should not only regularly review their compensation incentive systems and employee benefits according to the local market, but HR departments must also consider how best to develop high-potential employees from the perspective of a mid- and long-term business strategy.

Prioritize development of management talent: Due to the pronounced shortage of talent at the management level, foreign companies need to pay particular attention to prioritizing the development of employees at that level. As competition for talent escalates, foreign companies must be highly responsive to trends in the labor market and ensure that they do not just become a training ground for individuals who then leave to grow their careers with Chinese private-owned companies.

Today, when there is no perfect candidate for a position, companies are being rewarded for delaying hiring decisions while demand for their goods and services remains uncertain. With the global economy still fragile, organizations cannot afford to make an unsuitable hire, so they are instead getting more out of their existing workforce to meet the modest uptick in demand they are experiencing.

But as organizations look ahead at the looming talent shortage, a shortage already felt at the management level, they must begin to look for candidates, perhaps within the organizations, that are a “teachable fit” – that is, employees who may not have all the capabilities required for the job, but whose skills gaps can be filled in a timely and cost-effective way.

China is undoubtedly a land of opportunity for both foreign and Chinese-based organizations. The country is undergoing rapid growth which, coupled with shifting demographics and a growing awareness of the world outside its borders, is leading to changes in mindset when it comes to labor and a real turning point in development.

This means that both foreign and Chinese companies will need to adapt in order to stay ahead. Employers must be alert to the shifts in China’s economy and understand the challenges as well as opportunities that this will bring. Clarity of business objectives and the talent required to meet those objectives will be of utmost importance, particularly as the war for talent will only become more intense as the global economic recovery continues to gain traction.

Danny Yuan is Managing Director for Manpower China. This article was adapted from a Manpower article titled “Winning in China: Building Talent Competitiveness.” For more information, please visit www.manpower.com.cn.

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Leveling the Playing Field based businesses have exported over US$1 billion in products to China each year, according to the governor’s office. China has grown to become Minnesota’s second-largest export market for goods following Canada.

On what was likely his final overseas trade mission as governor, Pawlenty sat down with Insight to discuss how Minnesota competes in the global market, as well as the opportunities and challenges facing the broader U.S.-China commercial relationship.

Minnesota Governor Tim Pawlenty pitches free and fair trade on a level playing field.

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innesota Governor Tim Pawlenty’s recent trade mission to China focused on helping Minnesota businesses boost exports, build strategic relationships and explore new business opportunities. In September, the governor led a delegation of more than 60 Minnesota-based business leaders and state officials to Shanghai, Beijing and Xi’an. Pawlenty, whose final term as governor expires next month, is considered by many as a likely candidate for the Republican nomination for president of the United States in 2012.

Pawlenty has made export promotion a key part of his state’s efforts to help Minnesota exporters reach China’s rapidly expanding domestic market.

In 2005, Pawlenty announced the Minnesota-China Partnership, which is a broad initiative that aims to strengthen trade and investment ties with China, among other goals. Since that time, Minnesota-

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As Governor, this is your third trade mission to China in five years and you have a trade office here in Shanghai. It appears you’ve made China a focus for Minnesota.

Tim Pawlenty: We have certainly done trade missions to Europe and Latin America. But we note the magnitude of the demographics of China and the pace at which the economy is growing in China make it exceptional. I think it warrants exceptional attention and focus.

The objective of this trip is to sustain a focused effort on Minnesota business exports and Minnesota’s relations with China. We’re trying to promote the notion that exports worldwide are very important, but we also want to put time, attention and energy into making sure Minnesota businesses understand the opportunity and challenges of exporting to China. We want to do all we can to sustain an initiative we started a number of years ago to make China a focus of our trade efforts.

We have limited resources in our state trade office, so we made the decision five years ago that rather than doing a little bit across the globe we were going to concentrate resources and do a disproportionate amount of trade promotion, trade relations and trade exchanges focused on China. We established the Minnesota-China partnership. We put down a marker and said China would be a strategic focus for us. I think

the federal government could benefit from prioritizing as well. I support increased trade promotion at the federal level, but absent that magically appearing in the near term they should re-deploy resources to focus on areas that have the most growth potential.

What is your take on the economy in Minnesota and the U.S. right now?

TP: It’s challenged. We had the worst economic circumstances since World War II in the crash of 2008 and then the aftermath of that crash. That was a historic blow to the U.S. economy and the global economy. The U.S. is still trying to shake off the effects of that really dramatic drop-out of the bottom of the economy. There are mixed signals on how fast the recovery is occurring, whether it’s occurring, whether the recovery is going to continue or whether there is going to be a double dip.

Minnesota is doing better on average than the rest of the country. We’re fortunate. We still have a ways to go and we still have a lot of challenges, but our unemployment rate is the seventh lowest in the U.S. We’ve been adding jobs in the last 6 to 8 months at a rate faster than the rest of the nation, which is a hopeful thing. We have a diverse economy and we have begun to see some bright spots. For example, agriculture is doing reasonably well. We still are suffering from the effects of the recession, but Minnesota is doing better than the rest of the country.

A focus of Minnesota’s has been renewable energy. Minnesota has been a pioneer in renewable energy. We were one of the first and most aggressive states to enter the biofuels area, not just recently but in the 1990s. My administration has furthered that in a number of ways. We’re one of the top five producers of wind energy. We were one of the first states to have a “25 by 25” renewable energy goal. A quarter of Minnesota’s base load of electricity is to come from renewable sources by 2025.

Many of our big utilities are more than halfway there already.

Are you running for president?

TP: I need to finish my time as Governor of Minnesota, and I’m focused on that.

On a political level, I’m focused on 2010. After the 2010 election cycle, I’ll decide on what I’m going to do next. That won’t be until early next year.

Do you think U.S. companies are competing on a level playing field in China?

TP: I have to say that, anecdotally, I’ve heard increasing accounts that it’s getting tougher to do business in China. In big ways and small, the Chinese government seems to be making it more challenging for certain businesses in certain sectors to conduct business here. It can take the form of regulations. It can take the form of requirements about deploying certain levels of domestic technology. It can take the form of requirements on a domestic company partner. So, I’m worried. I’m concerned that the messaging seems to be that the Chinese government may be doing things to make it more difficult, not less difficult, to do business here.

What is the appropriate response?

TP: I think it starts with trying to treat each other respectfully and being open and candid about our concerns. I think it’s important that we have fair trade relations as measured by how they treat us compared to how we treat them in trade.

If it’s slanted too far in their direction, not as a matter of political rhetoric but as a

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Asia is not racing us to the bottom.

They're racing us to the top.”

matter of undeniable fact, then it’s going to have to be addressed.

The Chinese government has said that Chinese view doing business in the U.S. as difficult. If you ask them why it’s difficult, they say the language is difficult or the forms you need to fill out are difficult.

There have been some high profile exceptions, but the fact of the matter is that in general the U.S. has been pretty open about land ownership, about business ownership, about minimum requirements if you want to sell into the American market, and it doesn’t seem to be reciprocal, in some cases, for American companies wanting to conduct business in China. That’s concerning.

You’ve been quoted as saying the U.S. should be “not the biggest, not the cheapest, but the smartest.” What does that mean?

TP: If the goal is to have comparative advantage so you can have a friendly and successful competition, you have to have an advantage. China has 1.4 billion people; we’re 300 million people.

Our advantage isn’t going to be that we have more people. Second, if you look at the American cost structure, because of our quality of life, we’re probably not going to be the cheapest place to do certain types of business operations. So, if we’re not going to be the biggest demographically and we’re not going to be the cheapest in terms of cost of doing business compared to some emerging

markets, then we do need to be the smartest – “smartest” being a label for a whole variety of things, including education, skill, inventiveness, innovation and creativity, which leads to a pretty urgent need to address our educational system in the U.S. Asia is not racing us to the bottom. They’re racing us to the top. I think people have to realize that. There is a notion, maybe outdated, that all that Asia has to offer is low-cost manufacturing. But if you spend any time here you see that is changing.

As it relates to skill, technology and education, they’re racing us to the top.

As a potential candidate for president in 2012, what do you believe the next administration should do to support American companies in China that isn’t being done today?

TP: First of all, the goal of dramatically expanding exports from the U.S. is a very positive goal, and it should be not just rhetoric or aspiration.

There ought to be a strategy in place to get it done. With that in mind, for not a lot of money you could significantly increase trade promotion activities. These are often modest cost programs, and if you’re successful in leveraging publicprivate partnerships you can make the cost even more modest. Strategic, persistent focus on trade promotion, not episodically, not haphazardly, not once in a while but as a matter of priority and focus and energy, is valuable.

Two, when it comes to the free and fair trade arguments, I think the U.S. is going to have to be more aggressive when it comes to these concerns about whether we are being treated fairly. You don’t want to set off trade wars, but we need to make sure that if we’re going to be in hyper-competitive, fierce global competition that we’re not being taken for chumps. The rules have to be the same or similar both ways. I think we’ve been probably more casual about letting certain things slide than perhaps we should have.

David Basmajian is Director of Communications & Publications at AmCham Shanghai. He can be contacted at david.basmajian@amcham-shanghai.org.

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Partnering Globally to Ensure Safety Locally

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n August 14, 2008, the U.S. Congress passed and President George W. Bush signed into law a dramatic, sweeping product safety law called the Consumer Product Safety Improvement Act (CPSIA). The CPSIA was enacted because of concerns over breakdowns along the supply chain that resulted in significant quality issues that came to a head in 2007 when lead-laden toys, imported from China, hit the U.S. market. Apparent failures along the supply chain resulted in children’s toys containing alarmingly high levels of lead that entered the domestic stream of commerce and caused significant injuries and health issues in children.

The new law profoundly impacts China manufacturing practices (whether U.S. or Chinese manufacturers of products intended for the U.S. market) and places an increased burden on U.S. importers to comply with new legal requirements.

To help manufacturers and importers meet these requirements, the U.S. Consumer Product Safety Commission (CPSC), the agency established to protect American consumers from unreasonable risk of injury or death, plans to roll out next year new administrative regulations and requirements following a stay of enforcement in place until February 10, 2011.

Most important among the changes are new certification and testing requirements for consumer products imported to the U.S. For any product manufactured outside of the U.S., the

CPSIA requires the importer to certify that the imported product complies with all U.S. consumer product safety rules, regulations and standards.

In addition, all children’s products require independent third-party testing. In practice, the testing and certification requirement can be, and often is, contractually imposed on the supplier of that product. The CPSC enforces the certification and testing requirement at U.S. ports and can demand proof of certification before allowing the product to enter the domestic market. Financial penalties for violations have gone up dramatically for violators of the law, while the law has also changed to allow the CPSC to destroy products at the port of attempted entry as opposed to reexporting them to the port of origin.

Operational impact The new testing and certification requirement and bolstered financial penalties for violations can significantly impact China manufacturers and U.S. importers of products covered by the CPSIA. CPSC Chairman Inez Tenenbaum, who met with Insight to discuss product safety in October, points out that the impact of the new law as it affects manufacturers of certain products will be considerable. According to Tenenbaum, the children’s toy sector, of which 80 percent sold in the U.S. last year were manufactured in China, could see significant changes.

Testing and certification by a CPSC-accepted third-party laboratory that the children’s product

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The U.S. Consumer Product Safety Improvement Act brings changes to China manufacturing practices.

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The certification and testing requirement could be impeded by added cost and time, while questions about laboratory capacity is emerging as one of the critical issues voiced by American manufacturers in China.”

meets the new maximum standard regarding lead and phthalate content and the minimum standard regarding edges, sharp points, small parts and others is now required. The CPSIA also requires every child’s product, defined as a product designed or intended primarily for a child 12 years or younger, to contain a tracking label that captures supply chain data.

In early 2011, the CPSC also plans to pass a rule allowing for component part testing. Taking children’s products as an example, Tenenbaum explains that manufacturers of children’s sleepwear who buy snaps for the product from a third party will be allowed to rely on the third party’s certification that the snaps comply with the CPSIA. “If the third party certifies that they have tested those snaps, and the lead limits are met for children’s products, then the manufacturer does not have to retest the snaps,” she says. “That’s helping manufacturers tremendously so that they do not have to test all of the component parts.”

But, in all industries, the certification and testing requirement could be impeded by added cost and time, while questions about laboratory capacity is emerging as one of the critical issues voiced by American manufacturers in China. The CPSC website lists over 300 accredited testing agencies, 91 of which are located in mainland China and Hong Kong. While some laboratories with Chinese government ownership or control are in the CPSC’s program, export inspection laboratories (CIQ labs) of the China General Administration of Quality Supervision Inspection Quarantine (AQSIQ) do not qualify to participate under U.S. law in large part due to factors related to their organizational structure.

The CPSC acknowledges that compliance with the new requirements may be difficult for the time being, but that a phase-in period will help ease the burden. It also acknowledges that while the new requirements make manufacturing much more complex, for that reason, there is the opportunity to be more effective as an agency by pushing safety at the source.

“We want to be so much more proactive and come to China more frequently to provide seminars and training sessions for manufacturers so they will understand the U.S.’s standards, what our law

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is and how we are implementing the CPSIA,” says Tenenbaum.

Collaborating for consumer protection Given the recent spate of product safety cases involving imports from China, as well as the large amount of press paid to the topic, China manufacturers of products intended for the U.S. market can expect a high level of scrutiny at the border.

As the agency charged with the duty of protecting American consumers under the mandate of the CPSIA, the CPSC is putting significant enforcement mechanisms in place domestically.

To achieve this goal, the CPSC works with U.S. Customs to improve coordinated surveillance of imports – an effort that started in 2008 and recently gained ground with the signing of a 2010 memorandum of understanding between the CPSC and U.S. Customs and Border Protection. Under the memorandum, the CPSC posts inspectors at U.S. ports to enforce new CPSIA regulations like the requirement of a certificate of compliance.

The CPSC also looks beyond U.S. borders to implement U.S. regulations. Nancy Nord, former CPSC chairman and currently one of five CPSC commissioners, explained to Insight in November that in a world where products sold in America are manufactured abroad, “the reality is that product safety must be addressed globally.”On the importance of taking the message of safety to the manufacturer, she believes that better communication at all levels of the supply chain will translate to safer products sold in the U.S. market.

For instance, Nord shares that Tenenbaum’s recently completed trip to China engaged the AQSIQ and a European Union agency counterpart to provide a framework for cooperation between product safety agencies. Building on the successes of the first trilateral safety summit in 2008, the second trilateral safety summit, held this October, focused on developing a roadmap forward to tighten product safety regulations and set international safety standards. In particular, the roadmap calls for information sharing, employee exchanges, the convergence of standards and collaborative efforts

Safety at the source Looking ahead at the future of product safety, Nord believes a good manufacturer should insist that their suppliers use tracking labels to capture supply chain information regardless of whether or not it is required by the CPSIA. In the garment and apparel industry, the CPSC is working with manufacturers to implement tracking technologies that allow the manufacturer to take a product – a t-shirt, for example, and track it from the time it entered the factory as a bale of cotton to when and where the American purchaser buys it at a store. The benefit of tracking labels, Nord says, is two-fold. In the event of a recall, the importer can isolate the problem, identify which factory an unsafe product is from and pull the particular batch out of the stream of commerce rather than recall all batches of the products. As the regulator, the government can also go back upstream and find the source of the unsafe product. “There’s a financial incentive to be aware of this,” cautions Nord.

Going forward, the agency intends to push industries to implement voluntary consensus standards because they will fall outside the jurisdiction of CPSC’s data compilation and rulemaking process. The reason for this push, as Nord

CPSC

to improve product safety at the source.

In addition to high-level safety summits, U.S. safety officials largely represented by the CPSC meet regularly with their counterparts in China and in the EU not only to ensure their understanding of the CPSIA but to take the message to the manufacturers that safety is of utmost importance. The CPSC’s first American employee in China takes up the post of Regional Product Safety Officer in Beijing next January, with a mandate to improve outreach to governments and industry in the East Asia region.

Nord, who was in Shanghai to speak to manufacturers in the garment industry, sees her role as a resource for Chinese manufacturers as the agency works to spread word about the requirements of the CPSIA and how to implement the new law. “We want to make sure that Chinese manufacturers understand the importance of safety and also know where they can go to have their questions answered,” she says.

sees it, is that safety regulations will only work if there is a combination of mandatory regulations supplemented by consensus standards issued by the industry. She believes that “designing safety into the product” and “pushing safety back to the source” are the only ways to ensure safe products are manufactured in the first place. While the agency can force the recall of an unsafe product, as a government agency, the CPSC only issues mandatory safety standards when it has clear data demonstrating a product’s safety risk.

With a full time U.S. employee now joining an existing Chinese national employee in Beijing, the CPSC plans to expand its work in China to reach out to Chinese manufacturers, answer questions and arrange for training sessions, in addition to developing a working relationship with the Chinese government and the manufacturing community.

“As an agency that is only 530-people strong, to have committed staff in China demonstrates a significant commitment to the region and to the issues,” says Nord. As to progress, Tenenbaum points to the declining number of recalls due to high lead content in U.S. children’s products as progress coming out of China manufacturing operations. “The Chinese have realized that ‘Made in China’ means that people are going to be suspect if recalls keep happening – that recalls will hurt the China brand and will hurt their overall ability to sell,” she concludes.

Tiffany Yajima is Senior Associate Editor of Insight. She can be contacted at tiffany.yajima@amcham-shanghai.org.

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SAFETY SUMMIT: International cooperation brings improved consumer protection.

Asia’s New Front-Runner INSIGHT

DECEMBER 2010

ILLUSTRATION BY JASON PYM

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News of China’s rise to the rank of the world’s second-largest economy hit the headlines in August, spurring a frenzy of speculation as to the implications of such a powerful position in global economics. While all eyes are on China as a new world superpower, China must look within to stem rising inflation, correct an overheated property market, spur domestic innovation and address an increasingly ageing population as factors fundamental to the country’s sustained economic growth.

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sually mundane economic figures took center stage last summer when news broke that China’s second quarter nominal gross domestic product totaled US$1.34 trillion, exceeding Japan’s quarterly GDP by roughly US$50 billion.

China had surpassed its East Asian neighbor to become the world’s second-largest economy, behind only the United States.

The milestone stirred discussion across China and the world. A shake-up at the No. 2 slot had not occurred since 1968, when Japan overtook the former West Germany. What does the move up the global economy rankings mean for China, Asia and the world economy going forward?

China’s economic sprint past Japan, as well as Germany, France and the United Kingdom in recent years, though long anticipated and largely “symbolic” say observers, is a tribute to China’s blistering economic growth. On recognizing China’s achievement, the New York Times wrote that it “is the most striking evidence yet that China’s ascendance is for real and that the rest of the world will have to reckon with a new economic superpower.”

Despite China’s new ranking, China watchers recognize that the days of easy growth are closing and a more sustainable economic course would be prudent. Although China edged out Germany to become the top goods exporter of 2009, the long-term trend is the pace of external demand growth among China’s major export markets – the U.S., Europe and Japan – is decelerating.

“There are structural problems in China’s economy which cause unsteady, unbalanced, uncoordinated and unsustainable development,” cautioned Chinese Premier Wen Jiabao at a press conference during the National People’s Congress in March 2007. “China’s economy has maintained fast yet steady growth in recent years. However, this gives

no cause for complacency, neither in the past, nor now, or in the future.”

China’s leaders are thus seeing to it that the domestic economy aspires to rely less on increasing exports and investment and more on expanding internal demand and consumption, moving up the value chain and building world-class technological and educational institutions.

But the blueprint for China’s rebalancing of economic activity to a consumption-led path of development will not end there. Successful management of a number of financial and policy challenges – inflationary and asset pressures, spurring innovation and demographic changes, among other challenges – is key for the China of tomorrow to reach its potential.

Celebrated progress Since opening its markets to the world in the late 1970s, China has averaged an astounding growth rate of 10 percent per year. The country’s economic progress is among the strongest sustained growth observed. China’s accession to the World Trade Organization (WTO) in 2001 has contributed to accelerating that growth, transforming the country into the global power player of today.

The country’s economic ascent added about US$2 trillion to world GDP by 2007, according to the International Monetary Fund (IMF), and brought immense positive change to the lives of hundreds of millions of Chinese. The World Bank’s 2009 poverty assessment calculates the number of impoverished Chinese left to consume less than a dollar per day has decreased by more than 500 million between 1981 and 2004. Today, the average Chinese lives 27 years longer than in 1960, and roughly twice the percentage of the population is enrolled in secondary education compared to 1990, according to the World Bank.

Millions more Chinese are enjoying higher living

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IMAGINECHINA

BIG SPENDERS: As disposible incomes steadily rise, China is expected to become the largest market for LCD televisions in 2011.

standards than thought imaginable a generation ago. Although per capita income in China is about one-tenth that of many developed countries, it nearly has quadrupled in the previous 10 years from US$949 to US$3,744, according to the World Bank. A widening consumer base and large middle class have emerged, which McKinsey & Co. estimates will reach 400 million by 2015.

A middle-class lifestyle, especially in China’s largest cities, now means owning a car and a home, and for some, additional homes for financial security or investment purposes. More Chinese than ever can afford to educate their children overseas, take vacations and buy luxury items.

Changing consumption patterns have propelled China to boasting the world’s fifth largest (and rising) consumer market. The country now has the world’s largest market for passenger automobiles, mobile phones and Internet users. Retailers in China are expected to sell the most LCD television units next year and China is anticipated to become the largest market for luxury goods in five years thanks to demand for high-end products that are viewed as status symbols.

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As China has grown into the world’s foremost assembler in an integrated global supply chain, its trading and investment ties with the world’s major economies have evolved, especially with the U.S. “The two economies have become so closely intertwined that [it is] almost impossible to imagine [the] U.S. economy without China’s economy and vice versa,” remarked Pieter Bottelier, a China scholar at Johns Hopkins University, in an interview with C-SPAN, a Capitol Hill-based public affairs network.

U.S. Bureau of Economic Analysis data show the U.S.’s China-bound exports increased 330 percent between 2000 and 2009. China is America’s fastest-growing major export market due to growing Chinese demand. Meanwhile, Chinese foreign direct investment (FDI) into the U.S. increased an estimated 300 percent year-onyear to between US$3.9 billion and US$6.4 billion in 2009, according to an AmCham Shanghai Viewpoint report in June.

Outside the U.S., overseas Chinese investment is surging, especially to increase access to natural resources and raw materials, among other investments, to fuel increasing energy needs. Data from the China National Bureau of Statistics (NBS) show China’s total overseas investments more than doubled year-on-year to US$55.9 billion in 2008 thanks in part to a more than tripling of investment in Africa.

China has long been a leading destination for investment, absorbing a more than doubling of FDI since 2003 to RMB531.2 billion (US$80 billion) in 2008, according to official statistics. But China’s overseas investment position is growing so rapidly that Fan Chunyong, secretary-general of the China Industrial Overseas Development and Planning Association, predicts non-financial outbound Chinese investment may match inbound investment in 2015, reports China Daily.

Challenges ahead The Chinese economy has many strengths, such as an ability to mobilize masses of workers and capital with speed, that have contributed to some remarkable achievements. “Never in history have so many people made so much economic progress in one or two generations,” writes Cheng Li, research director of the Brookings Institution’s John L. Thornton China Center, in his new book China’s Emerging Middle Class.

But after decades of spectacular double-

digit growth, some of the aftereffects of such a quick economic expansion are becoming clearer.

In the short-term, what will likely command much attention are targeting rising inflation and a booming property market. Others, such as spurring innovation and managing the effects of an increasingly ageing population, remain longterm policy challenges as China’s leaders chart a more sustainable course for the country.

Inflationary pressure China’s major effort to avert the worst of the global financial crisis came in late 2008 in the form of a massive RMB4 trillion (roughly US$600 billion) two-year fiscal stimulus equal to about 13 percent of China’s 2008 GDP. The stimulus plan helped China achieve 9.1 percent GDP growth in 2009 and shore up employment by directing record amounts of state bank lending to bridge, railway and road building and to helping reconstruction efforts in the earthquake-hit Sichuan Province.

But with the stimulus winding down, the country now faces inflationary pressure stemming from years of loose monetary policy. “There are definitely some side effects. The stimulus could create hidden perils for the economy in the long term,” said Wang Hu, an economist at Shenyin & Wanguo Securities in Shanghai, to Reuters.

NBS data show the Consumer Price Index (CPI) – a widely used inflation gauge – heated up to a twoyear high of 4.4 percent in October year-on-year.

According to the bureau, food prices increased 10.1 percent in October from the previous year, while consumer prices increased 5 percent. Factors such as flood damage and rising labor costs contributed to a 62 percent increase year-on-year on the average wholesale price of 18 types of staple vegetables over the first 10 days in November, reports Xinhua.

The run-up in consumer prices means China may exceed the government’s 3 percent inflation target for the year. Bloomberg reports that Zhang Ping, chairman of the National Development and Reform Commission (NDRC), China’s main economic planning agency, said he recognizes China may “slightly” miss its inflation target.

Going forward, the World Bank forecasted in its November China Quarterly Update that “inflation may stay above the 3 percent target for a while” because of higher food prices.

In response, the People’s Bank of China (PBoC), China’s central bank, has moved decisively to tighten rapid credit growth. It recently instructed banks to increase their reserve requirement ratio

for the fifth time this year. Some of China’s largest banks will need to hold a record 18.5 percent in reserves. In October, the PBoC also raised the nation’s lending and deposit rates – the first interest rate hike since 2007.

Yet it appears banks have not slowed their lending. Central bank data show new loans through the first 10 months of the year reached RMB6.88 trillion (US$1 trillion), according to The Wall Street Journal. That amount is closing in on the RMB7.5 trillion target Beijing set earlier in the year to limit new loan authorizations and flirts with the nearly RMB10 trillion in record new state-directed loans set in 2009 to finance the bulk of the stimulus. The risk for banks is they may be saddled with a larger number of non-performing loans, caution analysts.

With inflation rising, Beijing may feel pressure to introduce another rate hike later this year.

“Inflation is significantly stronger than market and government expectations one or two months ago,” said Deutsche Bank economist Jun Ma to The Wall Street Journal. “For the next few months, we think fighting inflation will likely become the top priority of the government.”

Red-hot real estate Earlier this year, double-digit monthly price gains and a lending boom set off a real estate buying frenzy that raised the risk of asset bubbles. In an effort to cool the sizzling market, China’s central government launched a series of some of the strictest regulations to face any real estate market.

Beijing increased down payment requirements on first and second home mortgages, raised lending rates and clamped down on cross-city investments.

Recently, banks across the country were ordered to suspend loans for third home purchases; previously, banks in certain cities, as well as provincial and municipal governments, had discretion. China’s biggest four state-owned banks have suspended new loans to property developers for the remainder of the year, according to reports.

The measures largely have achieved the aim of settling the market. NBS data show sales price growth in 70 large and medium cities has decreased seven consecutive months to 8.6 percent in October year-on-year, down from April’s high of 12.8 percent.

But Beijing maintains a close eye on the sector for evidence of another possible price spike.

Housing demand is only expected to rise over the long-term. Because private housing is relatively new in China, real demand exists on a massive scale for first-time home purchases and present

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“

Spurring innovation and managing the effects of an increasingly ageing population remain longterm policy challenges as China’s leaders chart a more sustainable course for the country.”

“

China’s domestic economy is to shift from lowmargin, exportoriented production to one driven by higher value-added product research and development and services.”

homeowners looking to upgrade. Hundreds of millions of rural Chinese who will migrate to cities over the coming decades will add housing demand, as well as present new urbanization challenges for China’s local governments.

The broader challenge centers around bringing normalcy to a sector that contributes to 57.9 percent of the country’s GDP, according to Xinhua.

The real estate sector provides a sizeable revenue stream for many of China’s major municipal governments, construction jobs for countless workers and an important investment or financial planning component for Chinese families with few domestic alternatives for multiplying wealth. The risk of choking the real estate sector is a possible dent in a large part of China’s overall economy.

Spurring innovation China’s 12th Five-Year Plan, which starts next year, stresses spurring innovation as part of the country’s economic restructuring strategy. China’s domestic economy is to shift from low-margin, exportoriented production to one driven by higher value-added product research and development and services.

The potential for China to grow its innovation economy is immense. According to BusinessWeek, foreign-invested firms in China account for roughly 60 percent of the value-added content of Chinese exports. Stephen Roach, Morgan Stanley’s Asia chairman and former chief economist, pointed out in a 2009 speech to the Council on Foreign Relations that China’s services industry accounts for “only about 40 percent of Chinese GDP, making it about the smallest service sector of any major economy in the world today.”

China is committing to ramping up research and development. World Bank data show R&D spending has surged from 0.57 percent of GDP in 1996 to 1.49 percent of GDP in 2007. But aspirations to become a key part of the global innovation chain are not without challenges.

“China simply does not yet have high quality corporations that know how to run global operations or leverage technological change effectively,” writes noted China scholar Kenneth Lieberthal of the Brookings Institution in Ethos.

Implementation of a successful corporate culture to stimulate innovation is another challenge. Henry Chesbrough, a professor at the Haas Business School at the University of California-Berkeley, writes in Forbes that openness and collaboration are required to make use of the

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world’s best ideas and technologies. “Because many [Chinese companies] are former state-owned enterprises used to doing everything themselves, they are not very open, and that will limit their innovation potential,” he writes.

For its part in driving innovation, the city of Shanghai plans to build an “intelligence city” under its own Five-Year Plan. The city’s goal, reports Shanghai Daily, is to feature an advanced information technology infrastructure, “digital spaces,” tools to solve problems online and an army of creative workers to realize such goals.

“Innovation is the basis and origin of power to realize the city’s next five-year development plans,” said Shanghai Party Secretary Yu Zhengsheng at a November plenary session of the Party’s Shanghai committee, according to the Shanghai Daily.

Ageing demographic “[B]y 2030, China will look much like Italy or Japan, in terms of national age distribution, but it will still be a developing country in terms of per capita GDP, which is a very challenging situation,” writes Lieberthal.

According to a September Chinese Academy of Social Sciences (CASS) report cited in People’s Daily, China will have the world’s largest proportion of elderly citizens in 2030. Market research firm Euromonitor International projects that by that time, China’s population aged over 65 will increase to 222 million, up 70 percent from today’s size.

Since China introduced a one-child policy in 1978, the country’s fertility rate has plummeted from 2.7 births per woman to 1.8 in 2009, or below replacement levels, according to the World Bank.

The policy, according to David Pierson in the Los Angeles Times, has helped China’s economic rise, resulting in high savings rates, poverty reduction and improved living standards. But the policy in part continues to lead to accelerating China’s age.

One ramification of China’s entering a period of rapid ageing is that there are fewer children to care for the elderly. Already, the age-old tradition of an informal family care network is showing signs of breaking down. Nursing home facilities are becoming more in demand. Mass urbanization, though holding the promise to reduce poverty, may add further strain on family-provided elderly care in rural areas and add pressure to widen China’s relatively modest social safety net.

China’s total government expenditures today on age-related programs such as healthcare, pensions and unemployment benefits stand at 4.4 percent

A new horizon Despite many challenges, China is positioned to remain the world’s second-largest economy for years to come.

Analysts are predicting Japan will not challenge China in the near future to regain the position it had held for four decades. Japan recorded only 0.4 percent GDP growth in the second quarter of 2010 compared to the previous quarter and 0.9 percent growth in the third quarter, according to Japan’s Cabinet Office.

A heavily weighed currency is not helping Japanese exports – a major driver of the country’s economy – stay competitive in global markets.

By contrast, China’s economic engine, though slowing, maintains brisk growth and is estimated to expand 10 percent in 2010, 8.7 percent next year and “easing somewhat further in the medium term,” according to the World Bank’s latest quarterly report on China. The IMF forecasted 10.5 percent GDP growth for China this year and 9.6 percent in 2011 in its October World Economic Outlook.

“This is just the beginning,” said Wang Tao, an economist at UBS in Beijing, to The New York Times. “China is still a developing country. So it has a lot of room to grow.”

For the U.S., China’s move up the rankings signals a maturing Chinese economy that will offer exceptional commercial opportunities, especially as a key destination for boosting U.S. exports.

“The importance of the Chinese market to the global strategy of U.S. exporters and companies operating in China grows daily,” remarked U.S.

IMAGINECHINA

of GDP, according to an October report on global ageing by Standard & Poor’s. Those expenditures are projected to rise to a manageable 4.9 percent of GDP in 2020 and 7 percent in 2050. Those projections could change because China is investing tens of billions of dollars in subsidized medical care and is considering upgrading its pension system nationwide over the next five years.

Any large increase in state social spending could be a fiscal challenge, especially because of the sheer size of China’s ageing population and a sharply decreasing percentage of China’s working population able to support large public programs. China’s ratio of working-age citizens to retirees is expected to drop from about six in 2005 to two in 2040, according to Kristin Forbes, a member of President George W. Bush’s Council of Economic Advisers, in 2005 testimony to the House Committee on Ways and Means.

Commerce Secretary Gary Locke before the Senate Committee on Finance last June.

China will also continue to be an important source of growth for its neighbors in Asia.

China Customs data show that Asian countries accounted for close to two-thirds of China’s total imports in 2008. In 2010, China is thus far the top trading partner of Japan, South Korea, Taiwan, Hong Kong and Malaysia, according to the latest statistics available by country. Meanwhile, China is establishing free trade agreements across Asia, most notably establishing a free trade area with the 10-country Association of Southeast Asian Nations (ASEAN) that came into effect at the beginning of the year between six of the member countries.

What such economic integration among Asia’s major economies may mean is the “countries of Asia will continue to become more and more dependent on China,” writes Mark Mobius, executive chairman of Templeton Asset Management, in the Financial Times.

But as China secures a bigger place in the world economy and changes the nature of its development model, it becomes more critical that a number of challenges be addressed so that the foundation being laid for decades of new growth is fully realized.

Management of inflationary pressures, a sizzling real estate market and an increasingly ageing population, as well as overseeing the building blocks for an innovation economy, are some of the main areas of focus for China as it moves to an important new period of development.

Ryan Balis is a contributor on AmCham Shanghai’s communications & publications team. He can be reached at ryan.amchamsh@gmail.com.

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PROPERTY GRAB: Despite the government’s best efforts to temper prices, buyers continue to line up for property.

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INSIDE AMCHAM FROM THE CHAIRMAN

2010 Year-end Wrap Up

2

010 has been a memorable year. The Shanghai World Expo has come and gone and it’s safe to say that it surpassed all expectations. 2010 also saw challenges in the U.S.-China commercial relationship as China further established itself as one of the world’s most important economies and a vital market for U.S. businesses. For the first time in recent memory, China was a real factor in American electoral politics as the bilateral trading relationship took center stage on Capitol Hill. Through it all, however, American companies continue to prosper in China and AmCham Shanghai continues to strive to support the business success of our members.

As 2010 comes to an end, let me take this opportunity to thank you, the AmCham Shanghai membership, for all of the support and participation you have devoted to the Chamber. I’ve been proud to serve as Chairman this year and it has been an honor to lead this organization during what has been a truly historic World Expo. As I prepare to step down as Chairman of AmCham Shanghai, it is a good time to look back at some of the accomplishments of the Chamber over the past year.

As an official sponsor of the USA National Pavilion and the Pavilion’s Official Business Chamber Partner, AmCham Shanghai leveraged the Expo to attract world-class speakers as well as bring business opportunities to our membership.

The AmCham Shanghai 2010 World Expo Business Series brought top business executives, political leadership from the U.S. and China and other distinguished individuals to speak to the AmCham Shanghai Membership. The series included CEOs like Jeffrey Immelt of GE, George Buckley from 3M and James Rogers of Eastman Chemical.

AmCham Shanghai connected members with U.S. Secretary of State Hillary Clinton, Secretary of Commerce Gary Locke, Secretary of Transportation Ray LaHood and Secretary of Energy Dr. Steven Chu. Governors from the U.S. states of California, Hawaii, Minnesota and Texas also paid visits to the Chamber.

One of the most innovative programs of 2010 was the Provincial Governors Forum. Chinese provincial governors, party officials and mayors came to speak and meet with AmCham Shanghai members and provided face-to-face opportunities to explore investment opportunities. American businesses are increasingly “going west” and the focus of the program was on western provincial officials. These included the Governors of Hubei and Hunan, the Vice Governor of Sichuan, the Mayors of Chongqing and Chengdu and the Vice Mayor of Xi’an.

As the U.S.-China commercial relationship continues to grow in importance, AmCham Shanghai stepped up its advocacy efforts in 2010 to ensure policymakers in Washington are focused on the issues that most directly impact American companies with operations in China. This year’s Washington, D.C. Doorknock was the most successful ever. Despite the political headwinds faced

Robert Roche Chairman AmCham Shanghai

With the World Expo, 2010 was a historic year both for the city of Shanghai and the Chamber.

INSIDE AMCHAM FROM THE CHAIRMAN

by AmCham Shanghai Doorknock delegates, we met with close to 40 government and elected officials with a focus on China. Delegates stressed the importance of improving the business climate in China by addressing market access and other relevant issues and the need to refrain from measures that, while politically expedient in the short term, have doubtful long term effectiveness.

Back in Shanghai, the Chamber focused on specific measures to improve the member experience. New membership categories were launched that not only tailor memberships to the increasingly diverse companies we serve but to attract new and different companies for our existing members to interact with.

In 2010 we also strengthened our Committees structure with new committees that reflect the changing China market. This year, AmCham Shanghai launched the Aerospace Committee and the Food, Agriculture & Beverage Committee and we continued partnerships with the Asia Society and the Brookings Institution.

More than 250 events were held in 2010 with record attendance levels. With changes made in 2010, we’ll make it even easier for you to attend Chamber events. Starting January 1, 2011, we’ll accept credit card payment for events, both online and at the venue, and we’ll be able to offer AmCham Shanghai fapiao for events and meetings.

2010 marks 23 years that AmCham Shanghai has served as the Voice of American Business in China and I am sure I speak for the entire Board when I say I have been proud to be part of this year’s achievements.

I would like to congratulate incoming 2011 Chairman Eric Musser and the newly elected 2011 Board of Governors. I would also like to thank the 2010 Governors for their collective leadership and dedication to AmCham Shanghai, President Brenda Foster and the office staff for all their hard work, the Committee chairs and vice-chairs for their expertise and contributions, and most importantly, all the members for making the past year such a memorable and rewarding experience for me personally.

I’m confident that 2011 will be yet another historic year for AmCham Shanghai and I look forward to continuing to work with all of you.

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B O A R D O F G OV E R N O R S B R I E F I N G

Highlights from the November 2010 Board of Governors Meeting Committee Briefings Sherman Chu and Don Williams, co-chairs of the Legal Committee, and Geoff Martin, chair of the Sourcing & Procurement Committee, briefed the Board on their committees’ annual agendas, recent activities and development plans.

Membership Update 50 new member applications were approved over the past month.

Expo Wrap Up David Turchetti, Vice President of Programs, provided an overview of AmCham Shanghai’s events and programming during the recently concluded Shanghai 2010 World Expo. The programming centered on the CEO Speaker Series, the Distinguished Speaker Series and the Government Speaker Forum and the website created especially for the Expo drew over 10,000

page views. Participation in the Expo was a success and AmCham Shanghai was credited extensively by members, government officials in the U.S. and China and in the press for its Expo programs and leadership. AmCham Shanghai’s sponsorship of the USA Pavilion was also considered a success as it lifted the Chamber’s Expo profile and served as a conduit for speakers and new members.

IN ATTENDANCE Governors: Bill Brekke, Eddy Chan, Pierre Cohade, John Grobowski, Jim Mullinax, Eric Musser, James Rice, Robert Roche (Chairman) and Kevin Wale.

Attendees: David Basmajian, Justin Chan, Sherman Chu, Siobhan Das, Brenda Foster (President), John Leary, Geoff Martin, David Turchetti, Linda X. Wang, Don Williams, Jessica Wu and Karen Yuen.

2010 Business Climate Survey David Basmajian, Director of Communications & Publications, previewed the upcoming 2010 business climate survey, which will be launched in the middle of November. Survey design is ongoing with partner Technomic Asia and a member taskforce. The focus of this year’s survey is building indices based on quantitative measurements that provide members and other stakeholders with substantive information.

REGRETS Andrew Au, Murray King, Diane Long and Matthew Targett.

Thank you to the AmCham Shanghai 2010 Board of Governors: Chairman

Governors

Andrew Au Citibank China

Murray King APCO Worldwide

James Rice CSM Global

Eddy Chan FedEx Express

Diane E. Long UBS International

Matthew J.Targett Bayer Technology and Engineering

Pierre E. Cohade The Goodyear Tire & Rubber Co.

Eric S. Musser Corning China

Kevin E.Wale General Motors China Group

Robert W. Roche Acorn International

Vice Chairman

John V. Grobowski Faegre & Benson LLP

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AmCham Shanghai 2010 Annual General Meeting

Congratulations to the 2011 AmCham Shanghai Board of Governors Chairman Eric Musser Corning China Vice Chairman Robert Roche Acorn International Governors Andrew Au Citibank China

At AmCham Shanghai’s 2010 Annual General Meeting, Chairman Robert Roche reviewed the Chamber’s achievements over the year, which was highlighted by the Shanghai 2010 World Expo. AmCham Shanghai’s Expo Business Series was a resounding success and its sponsorship of the USA Pavilion increased the organization’s standing in China and internationally. He also reviewed the AmCham Shanghai’s financial report for the year, noting the Chamber’s continued satisfactory financial performance over the past year.

Paul Brown International Paper Eddy Chan FedEx Express

AmCham Shanghai’s 2010 Sponsors of the Year were then recognized: ADP China, Air Canada, Aon Hewitt, Eagle Ottawa China, Ltd., HSBC Bank (China) Co., Ltd., Rutgers, The State University of New Jersey, Shanghai Kelly Services Human Resources Co., Ltd., Shanghai Racquet Club & Apartments, Shanghai United Family Hospital and Clinics and SSOE China Co., Ltd.

Ted Hornbein Richco Asia Kenneth Jarrett APCO Worldwide

AmCham Shanghai then hosted Robert Broadfoot, founder and managing director of Political & Economic Risk Consultancy, as the meeting’s keynote speaker. Broadfoot spoke of future of the Chinese renminbi (RMB) as a major world currency and the implications for global trade and politics. He predicted that a stronger Chinese currency and rising national demand will be felt in the global pricing of commodities, requiring other countries to coordinate their exchange rate policies with Beijing. Broadfoot also predicted that a stronger RMB will begin to challenge the dominance of the U.S. dollar and, in the future, the U.S. dollar may have to share the role of reserve currency with the RMB. Growth of the RMB market, he said, will also bolster the importance of Asian financial centers like Hong Kong and Shanghai which are equipped to deal with the RMB. In his opinion, the debate between a free-floating currency and a managed system to control volatility could intensify as there is broad discomfort among many countries with ongoing exchange rate volatility.

Marie Kissel Baxter Matthew Targett Bayer Technology and Engineering Kevin Wale General Motors Eric Zheng Chartis Insurance

AmCham Shanghai 2010 Nominations & Elections Committee (NEC) Chair J. Norwell Coquillard then announced the results of the 2011 Board of Governors election (see sidebar).

He also thanked NEC members Pilar Dieter, Ben Kinnas, Victoria Moy and Rao Talasila. (Nov 4)

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The AMERICAN CHAMBER of COMMERCE in SHANGHAI

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Highlights from AmCham Shanghai’s May Richard Haass, president of the Council on Foreign Relations, discusses his outlook on U.S.China relations ahead of the May Strategic & Economic Dialogue (S&ED). (May 12)

Margery Kraus, founder and CEO of public affairs and communications firm APCO Worldwide, shares her vision of global business diplomacy. (May 15)

U.S. Secretary of Transportation Ray LaHood discusses the development of highspeed rail in China and the prospects for a similar network in the U.S. (May 14)

U.S. Commerce Secretary Gary Locke highlights areas for U.S.-China collaboration and addresses the challenges U.S. companies face in China. (May 19)

June

At an event held at the USA Pavilion, Jeffrey Immelt, chairman and CEO of General Electric, shares his thoughts on succeeding in China and the importance of innovation. (Jun 2)

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U.S. Senator Dianne Feinstein (D-California) emphasizes the importance of forging long term relationships with China’s political leaders. (Jun 4)

DECEMBER 2010

Governor Linda Lingle discusses Hawaii’s Clean Energy Initiative and her vision of Hawaii as a model state for the future of clean energy innovation. (Jun 7)

2010 World Expo Business Series July

August

Hubei Governor Li Hongzhong shares insight into Hubei’s industry background and provides an overview of investment opportunities in the province.

(Jul 19)

Chengdu Mayor Ge Honglin speaks about investment in western China and Chengdu’s development into a tier one city. (Aug 9)

September

October

James Ryan, chairman, president and CEO of Grainger Industrial Supply, discusses how businesses can enhance the productivity of their Chinese operations.

(Sep 20)

AmCham Shanghai and the Bay Area Council co-host Governor Arnold Schwarzenegger who discusses California’s growth, trade with China and high-speed rail development.

(Sep 13)

Industry leaders discuss best practices in China at AmCham Shanghai’s Innovation Forum held on the grounds of Expo 2010 at the USA Pavilion. (Oct 18)

OFFICIAL SPONSOR & BUSINESS CHAMBER OF THE USA PAVILION

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CSR: At the Core of Business Success

N

S

CSR

CONFERENCE

On November 18, AmCham Shanghai hosted its Sixth Annual CSR Conference, CSR: At the Core of Business Success, at the Renaissance Shanghai Zhongshan Park Hotel.

This year’s CSR Conference featured participants from a wide range of industries who spoke on how to integrate CSR into business practices. Topics included corporate governance, social outreach and environmental sustainability.

Interactive training seminars in the morning gave attendees the opportunity to discover and share best practices and case studies. In the seminar How to Achieve a Socially Responsible Supply Chain in China, multinational companies shared the integration of CSR into their corporate culture to establish concrete CSR goals for their supply chains. Government and corporate speakers presented at a seminar titled Creating and Managing Corporate Volunteer Programs, which was designed to give attendees an overview of corporate volunteerism programming. In a third workshop, Tackling Corruption – A Practical Guide to Help Enhance Economic Sustainability, attendees worked through scenarios with compliance experts and discussed PRC and U.S. anti-corruption laws.

In the afternoon, keynote speaker Abhimanyu Singh, director and representative of the United Nations Educational, Scientific and Cultural Organization (UNESCO) Beijing spoke about how CSR will help the United Nations accomplish its Millennium Development Goals. “CSR means the deliberate inclusion of public interest into corporate decision-making. It means [that] business looks at community concerns beyond profit…it means you subscribe to the idea that principles and profit go hand in hand,” Singh noted.

Interactive workshops moderated by CSR professionals took place throughout the afternoon and provided attendees an opportunity to engage directly with leaders in the CSR field. In

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the panel How to Communicate CSR to Your Stakeholders, CSR managers from PricewaterhouseCoopers (PwC) and Amway discussed their CSR programs and how they leverage their CSR activities to engage stakeholders. Callum Douglas from PwC emphasized the importance of dialogue and involvement of stakeholders and employees throughout the development of CSR programs, establishing trust and a professional image that sustains CSR activities. “Transparency is a good way of showing trust,” said Douglas.

Conference participants also attended panels devoted to CSR programming. Corporate and non-governmental representatives discussed the merits and challenges of public-private partnerships in the panels How to Select an NGO Partner and Building a Great Educational Program into Your CSR Portfolio.

Members of small- and medium-sized businesses engaged in a lively debate over how to implement CSR programs on a budget in the panel CSR Action Plans for Small Businesses.

The Conference ended with an executive panel, featuring Dr. Chuan Chen of Johnson & Johnson China, Norwell Coquillard of APCO Worldwide and SIFE China, Lorna Davis of Kraft Foods China and Robert Roche, 2010 chairman of AmCham Shanghai and chairman of Acorn International, on how to best communicate CSR issues to senior management and make them a part of company strategy. The executives emphasized that a good CSR idea is similar to any other business idea – it must be combined with the ability to execute it in a sustainable manner.

The day culminated with the presentation of AmCham Shanghai’s Sixth Annual CSR Awards. Three awards were given: The AmCham Shanghai Partnership Award, the CSR Practitioner Award and the CSR Award, for overall excellence in Chinabased CSR programming.

– Susan Lawrence

2010 AmCham Shanghai Corporate Social Responsibility Awards CSR Award Winner Johnson & Johnson (China), Ltd. Finalists: Citibank (China) Co., Ltd. Honeywell KPMG The Walt Disney Co. (Shanghai), Ltd.

Partnership Award Winners Kraft Foods Corporate Management (Shanghai) Co., Ltd. & the China Youth Development Foundation Finalists: Cargill Investments (China) Ltd. & Habitat for Humanity China Dow Chemical (China) Co., Ltd. & Junior Achievement China General Electric (China) Co., Ltd. & Junior Achievement China General Motors (China) Investment Co., Ltd. & National Care Series Committee Mary Kay (China) Cosmetics Co., Ltd. & China Women’s Development Foundation

CSR Practitioner Award Winner Bill Valentino Vice President, CSR, Greater China Bayer (China), Ltd.

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AmCham Shanghai New Members: October - November 2010 U.S. Corporate Membership DTI Information Technology (Shanghai) Corp.

FANG San Kong Eaton Industries (Wuxi) Co., Ltd., Shanghai Branch WANG Zhan International Copper Association, Ltd., Shanghai Office XU Richard Lica Design (Shanghai) Co., Ltd. PEREZ SANTOS Laura Virginia Medtronic Medical Appliance Technology & Service (Shanghai), Ltd. FAN Yang Micarta Composite Material (Shanghai) Trading Co., Ltd. DAVIS Dustin Terex (Changzhou) Machinery Co., Ltd. MAYO Kevin

U.S. Associated Corporate Membership Apax Investment Management (Shanghai) Co., Ltd. ZHANG Richard AZ Electronic Materials (Suzhou), Ltd. SUI Yu Changzhou TrinaSolar Energy Co., Ltd. SHAO Yang China Novartis Institutes for BioMedical Research Co., Ltd MA Guang Wei Hisense-Whirlpool (Zhejiang) Electric Appliances Co., Ltd. XU Feng MKS Instruments (Shanghai), Ltd. WEISS Rudolf Michael MSL China WAUNG Blessing Oracle (China) Software System Co., Ltd., Shanghai Branch SAID Bing Pentair Trading (Shanghai) Co., Ltd. LI Tianwen Styron S/B Latex (Zhangjiagang) Co., Ltd. GAO Feng

Small Business Membership Leadingenes (Shanghai), Ltd. FONG Josephine LECG Shanghai, Ltd. UTLEY Rupert Yinghuan (Shanghai) Software Technology Co., Ltd. LAM Mark

Corporate International Affiliate Membership Hartung Informational System Co., Ltd. HEIL Joerg Taicang Universal Fibers Co., Ltd. JIANG Ning Uniplan (Shanghai) Co., Ltd. ARNDT Karen

Non-Resident Corporate Membership Center for Creative Leadership (CCL) Pte., Ltd. NATHAN Sureish

Associate Membership B & L (Shanghai) Engineering Consulting Co., Ltd. ZHANG Tony Bayer Technology and Engineering (Shanghai) Co., Ltd. HONG Huijie JIANG Lily Bovis Lend Lease Projects (Shanghai) Co., Ltd. MURPHY Ryan Changzhou Biomet Medical Devices Co. Ltd. SRINIVASAN Ashok Cooper (China) Co., Ltd. CHEN Hua Cooper Electric (Shanghai) Co., Ltd. CHEN Hua DTI Information Technology (Shanghai) Corp.

QIU Eric Fredrikson & Byron P.A., Shanghai Rep. Office CHEN Hongcheng Gap (Shanghai) Commercial Co., Ltd. NG May Guangdong Valspar Paints Manufacturing Co., Ltd. CHEN Meili Hill Jianke Project Management (Shanghai) Co., Ltd. KARDOUS Abdo Ingersoll-Rand (China) Investment Co., Ltd. LI Yi IP Corporate Management (Shanghai) Co., Ltd. HU Hao Yang Jones Lang LaSalle Surveyors (Shanghai) Co., Ltd. PAN Amy KPMG SOONG Jack Lica Design (Shanghai) Co., Ltd. HARTBERGER Michael Thomas Melaleuca (China) Wellness Products Co., Ltd. MA Bing NAI Communication Technology (Suzhou) Co., Ltd. LIU Feng Parkway (Shanghai) Hospital Management Ltd. AHN Jason XU Huan Pentair Trading (Shanghai) Co., Ltd. DUNN William David Pepsico Investment (China), Ltd. TUNG Kenneth Pfizer Investment Co., Ltd. TAN John Semiconductor Manufacturing International (Shanghai) Corp.

COLE Michael GANO Ambrose

Shanghai ACT Industrial Repair Services Co., Ltd. SUN Yong Shanghai Johnson Controls International Battery Co., Ltd. YANG Shuqing Shanghai United Family Hospital, Inc. KO Ying L. MIAO Jie Man TONG Lucene Steinberg Architects BRISCOE Jason Terex (Changzhou) Machinery Co., Ltd. MICHEAUDan Thermo Fisher Scientific (China) Co., Ltd. GU Ran Xizi Otis Elevator Co., Ltd. WU Wing I Yinghuan (Shanghai) Software Technology Co., Ltd. ZHAO Cindy

Individual U.S. Citizen Membership Asia Pulp & Paper BRYANS Kevin Chandler Far East Manufacturing PENKE Slade Creative Solutions DAVIS Kenneth InsightChina UPTON-MCLAUGHLIN Sean Michael Ivanhoe Cambridge China DESWART Laura IWNC FARBER Rhett GOLDMAN Michael JAROSZ William SCALES Christopher STONE Francis TANG Chibo

Non-Resident Individual Membership Swedish Health Services CARTER Michael

Individual International Affiliate Membership Bencer Construction JOBB Harley Eternal Technologies TANG Cheng-Yu Honor Security Services Co., Ltd. CHU Peter HRO Consulting (Shanghai) Co., Ltd. NAGY Gabor Shanghai Learnmart Management Consulting CHENG Ching Ching StonCor Group Inc., Shanghai Rep. Office FEWTRELL Paul ARFSTEN Marret CONNOLLY Paul SHAO Vivian

DECEMBER 2010 INSIGHT 39 Do you want to share more information about your company?

Contact Sophia Chen at (86 21) 6279-7119 ext. 5667 or sophia.chen@amcham-shanghai.org for a “Standout Listing” opportunity in the New Members Section.

Event Highlights

INSIDE AMCHAM

U.S. Government Delegation: U.S. Ambassador to China Jon Huntsman AmCham Shanghai hosted U.S. Ambassador to China Jon Huntsman, who heard from Chamber members on issues facing U.S. companies doing business in China. AmCham Shanghai 2010 Washington, D.C. Doorknock delegates briefed the Ambassador on their Chamber members brief Ambassador Jon Huntsman (center). reception in Washington and reviewed their key “asks,” including expanding on President Obama’s National Export Initiative by taking specific targeted action to increase U.S. export competitiveness in China. The discussion then opened up to members from a wide range of industries, including finance, insurance, logistics, pharmaceuticals and information technology, who described their specific challenges in the China market. These included China’s indigenous innovation policies, quality and safety regulation, national treatment and intellectual property rights protection and enforcement. Ambassador Huntsman gave an overview of significant issues in the U.S.-China relationship and asked for specific examples from U.S. companies that would illustrate the impact of Chinese government policies on business in China. (Oct 28)

November Monthly Member Briefing AmCham Shanghai was pleased to host Dr. Kenneth Lieberthal of Brookings, who discussed the future of U.S.-China relations during the Chamber’s Monthly Member Briefing. Lieberthal reviewed a framework for successful bilateral relations and some of the challenges to that success.

He explained that U.S.-China relations over the past 50 years have developed in “depth and breadth,” but that the relationship contains some fundamental challenges. Primary among them is a mutual mistrust of each other’s long-term intentions.

Lieberthal explained that the financial crisis of the last two years has presented new obstacles for bilateral relations as China rises as an economic power. He also explained that there might not be an easy solution to this mutual distrust, but that the U.S. and China, as two global powers, must continue to maintain open lines of communication.

Upcoming high-level visits, including that of President Hu Jintao to the U.S. in January and that of Secretary of Defense Robert Gates to China are very important as the U.S. tries to forge partnerships with China, in particular on clean energy and currency issues. (Nov 2)

Dr. Kenneth Lieberthal discusses the U.S.-China relationship.

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U.S. Government Delegation: Suresh Kumar, Director General, U.S. Foreign Commercial Service

FCS Director General Suresh Kumar underscores the importance of exports.

AmCham Shanghai was pleased to host Assistant Secretary of Commerce and Director General of the U.S. & Foreign Commercial Service (FCS) Suresh Kumar, as he discussed President Barack Obama’s National Export Initiative (NEI), the importance of U.S. exports to China to creating American jobs and the needs of U.S. businesses on the ground in China. Members representing a wide range of industries underscored the opportunity that the China market offers for U.S. exports, and then briefed Kumar on how building upon the NEI could provide measurable improvements to U.S. export competitiveness in China.

Kumar provided an overview of the latest developments at the FCS, including programs to support new-to-market companies, and emphasized the importance of business organizations such as AmCham Shanghai as a focal point and resource for U.S. businesses in or seeking to enter the China market. (Nov 8)

U.S. Energy Secretary Dr. Steven Chu

U.S. Government Delegation: U.S. Secretary of Energy Dr. Steven Chu AmCham Shanghai was pleased to recently host U.S. Secretary of Energy and Nobel Prize recipient Dr. Steven Chu, who engaged AmCham Shanghai members on issues related to clean energy technology and the deployment of new clean energy technologies in China. Chu emphasized that he hopes the U.S. forges new partnerships with China in the field of renewable energy, as sustainable technologies can create new jobs in the U.S. and meet growing energy demand in both China and the U.S. Members from a wide range of industries, including automotive, chemical and IT, briefed Chu on specific issues impacting their China operations, including local protectionism and indigenous innovation policies that prevent American industries from fairly competing in the China market. Other issues covered included local electrical power cuts to meet China’s carbon goals and increasing funding for U.S. government commercial services to support U.S. business in China.

(Nov 15)

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Committee Highlights

INSIDE AMCHAM

Information Technology Committee Green IT Forum AmCham Shanghai’s Information Technology (IT) Committee and China Cleantech Focus were pleased to host the Green IT Forum in November. The halfday forum focused on the challenges and benefits of incorporating green IT strategies in the office.

Panelists and attendees also discussed the development and implementation of customized corporate green IT strategies. These strategies include the efficient use of computer resources, environmentally friendly production processes and encouraging IT departments to consider “greener” options such as virtualization, power management and approved recycling habits. David Lynch, CIO of Standard Chartered Bank China, gave a keynote speech about the bank’s commitment to sustainable practices. Executives from leading global IT companies then participated in panel discussions on how implement Green IT strategies in China. (Nov 9)

Panelists focus on key factors of a “go west” strategy.

Speakers highlight sustainable IT programs.

Logistics & Transportation Committee Go West Symposium

The Logistics & Transportation Committee recently hosted the Go West Symposium, a half-day event that focused on the opportunities and challenges of expanding or relocating to China’s western provinces.

Participants from a wide range of industries outlined the fundamental questions companies must consider and highlighted the decision process followed by their companies. Andrew Browne, China editor of The Wall Street Journal, delivered the keynote speech on trends in the region in relation to expansion and growth in greater China. Browne covered government plans to build infrastructure in the west to spur balanced economic growth across the country, and highlighted the massive expansion of high-speed rail and improvement of healthcare facilities.

Executives from the logistics, risk management and human resources sectors then participated in panel discussions on the pros and cons of moving to Western China. Labor costs, local market growth and access to local talent were mentioned as factors for consideration, while access to a well-educated talent pool, tax incentives and a rapidly growing consumer base were discussed as deciding factors to move west. In a separate panel, participants from real estate and management consultancies emphasized the importance of market and site research before moving west. Many western Chinese cities, for example, specialize in particular industries and have tax and policy incentives that cater to these particular areas. (Nov 11)

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Marketing & Media Committee The Evolution of Luxury in China The Marketing & Media Committee was pleased to host the second annual luxury event on the evolution of trends in China’s luxury market. John Chattock, retail sector partner of KPMG Shanghai, shared insights from KPMG’s annual luxury report, describing current trends in China’s luxury market and changes in purchasing behavior. Chattock described a shift in drivers of luxury purchases among the Chinese, moving from that of Panelists discuss trends in China’s status toward that of “experiential factors” like luxury market. individuality and connoisseurship. The most important factors in purchasing behavior include high product quality and heritage as well as after-sales service, with Chinese consumers claiming to be interested in both “green” and corporate social responsibility strategies. He pointed out that celebrity endorsements in luxury advertising are considered less effective than in Western markets. Rupert Hoogewerf, founder and publisher of the China Rich List, spoke about the brand preferences and purchasing behavior of China’s wealthiest millionaires. Following the presentation, Jean-Michel Dumont, chairman of Ruder Finn Asia, joined a panel discussion on the future outlook for China’s luxury market. (Nov 12)

Information Technology Committee Smartphones for Contactless Mobile Payments The Information Technology (IT) Committee recently hosted Karl Weaver from digital security firm Gemalto to brief IT professionals on the opportunities that smartphones present for contactless mobile payments.

Smartphones were developed to facilitate communication and increase convenience for Digital security expert Karl Weaver discusses consumers. The technology allows consumers to buy smartphone technology. groceries, use the ATM, pay for transportation and other daily domestic activities all through contactless payments via their phone, he explained. However, a “chicken and egg” situation exists between handset vendors and technology developers: technology developers intend to wait until market demand reaches 20% or higher, while handset vendors are waiting for the technology to be in place to sell smartphones to consumers. This challenge, he concluded, has delayed the introduction of smart phones with contactless mobile payments onto the market. Weaver stated that his firm has focused on how the Chinese market is working to implement new smartphone technology, the main issue being security. (Nov 16)

Event and Committee Highlights are reported by Ashley Cahill, Krisanna Oopik and Esther Young DECEMBER 2010

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DEAL OF THE MONTH IMAGINECHINA

A Step Forward for the Yuan

China and Russia agree to increase use of national currencies in bilateral trade.

I

n the latest development toward making the Chinese yuan a global currency, China and Russia announced an agreement to increase the use of the renminbi and Russian ruble in bilateral trade. The agreement was announced in Moscow at the conclusion of the 15th regular meeting between Chinese Premier Wen Jiabao and Russian Prime Minister Vladimir Putin.

The two leaders oversaw the signing of several agreements in areas relating to oil supplies and refining, intellectual property and border issues.

In other agreements, Russia’s largest credit institution, Sberbank, and the Export-Import Bank of China agreed to open a US$2 billion credit line to fund joint projects in areas such as finance, electric power, telecommunications, metallurgy and agriculture. In the first half of this year, China overtook Germany as Russia’s secondlargest trading partner, mainly due to demand for Russian commodities such as aluminum, nickel, oil and gas.

On November 22, China opened its foreign exchange market to the Russian ruble in an attempt to promote bilateral trade and reduce the conversion cost between the two currencies.

The yuan is expected to begin trading in Moscow in early December. China hopes to benefit from yuan-ruble trade by reducing the volatility in its access to strategic commodities and dependence on the U.S. dollar. Total trade between Russia and China is estimated to top US$50 billion by the

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end of this year and has been overwhelmingly conducted in U.S. dollars. The Russian Central Bank has reported that Russian-Chinese trade from 2003 to 2010 in the border areas increased nine-fold.

According to the China Foreign Currency Trading Center, the interbank yuan-ruble trade will be conducted through spot exchange transactions and can float five percent above or below the middle rate, announced at 9:15 a.m. local time each business day. The trading band is higher than the current three percent limit for yuan trading against other non-U.S. dollar currencies. In addition to the ruble, China allows the yuan to trade against six foreign currencies on its foreign exchange trading system: the U.S. dollar, the Hong Kong dollar, the yen, the euro, the pound and the Malaysian ringgit.

Since the Bank of China’s June announcement to adopt a managed floating exchange rate, China has encouraged the yuan’s use for cross-border trade to reduce its reliance on the U.S. dollar. To date, China has forged deals with Malaysia, Hong Kong, Singapore and the United Arab Emirates to settle more trade using national currencies. There is speculation that Turkey will soon be added to the list. The decision between Chinese and Russian leaders to cooperate in promoting trade using national currencies is widely considered to be an encouraging sign for Sino-Russian trade relations.

– Ashley Cahill

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